) debriefed analysts about its strategic maneuvers and growth
plans at the Deutsche Bank Healthcare Conference.
To begin with, management at Walgreens emphasized the expected
benefits from its 10-year old deal with
). AmerisourceBergen will replace Walgreens' current
) as the existing contract is set to expire in Aug 2013.
Walgreens' three-pronged deal with AmerisourceBergen underlines a
strategic collaboration, equity alignment and distribution
agreement. While the company is riding the generic wave, the deal
augments Walgreens' generic buying capacity by a massive $3.5
billion. This long-term agreement with Walgreens is expected to
create a kingpin in the prescription drug purchasing space.
Walgreens is a step closer to exercising its right to purchase a
minority stake (of 7%) in AmerisourceBergen following the
regulatory clearance. Although the equity alignment is
exercisable up to 23%, Walgreens can obtain a maximum of 30%
stake (maximum limit per agreement) in AmerisourceBergen if the
latter continues its share buyback activity.
Following the reconciliation with
Express Scripts Holding Company
), Walgreens is sanguine about increasing returns of customers
from competitors. While sluggish front-end comparable store sales
have been a cause of concern, Walgreens is optimistic about
improving trends and customer traffic going forward.
With respect to long-term expectations, Walgreens continues to
envisage synergies from Alliance Boots partnership to be between
$100-$150 million in the first year and $1 billion by the end of
2016. Further, the accretive deal with AmerisourceBergen might
lend some upside to Walgreens' target.
Walgreens' Balance Rewards loyalty program (launched Sep 2012)
continues to gain traction and has recorded more than 70 million
registrations to date. The company also discussed the ecommerce
Nonetheless, Walgreens faces the headwinds of increased
competition and tough industry conditions. While things are
looking up for the company on the back of recent positive
developments, the progress has been slow. Resultantly, we keep an
eye on the ongoing developments and prefer to avoid this Zacks
Rank #4 (Sell) stock.
AMERISOURCEBRGN (ABC): Free Stock Analysis
CARDINAL HEALTH (CAH): Free Stock Analysis
EXPRESS SCRIPTS (ESRX): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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